In the past 1 year, the Pharma index has disappointed with negative returns of 21.6% while the Nifty has returned 17.4%. Despite a collective dismal showing by the pharmaceutical sector, Angel Broking is bullish on it as it believes the worst is over.

Despite a collective dismal showing by the pharmaceutical sector, Angel Broking is bullish on it as it believes the worst is over.

In the past one year, the Pharma index has disappointed with negative returns of 21.6% while the Nifty has returned 17.4%. Despite a collective dismal showing by the pharmaceutical sector, Angel Broking is bullish on it as it believes the worst is over.

“While the Nifty has given returns of (+17.4%) over the last 1 year, the Pharma index has given a return of (-21.6%). The reasons have been plenty, where all that could go wrong had gone wrong. However, the sharp fall in stock prices has also resulted in the valuations of these stocks becoming attractive, and hence we believe this provides the long term-investors an entry point. Our top picks are Sun Pharma, Lupin and Aurobindo Pharma,” said Sarabjit Kour Nangra, VP Research- Pharma at Angel Broking, in a research note.

The pharmaceutical industry as a whole faced all sorts of problems ranging from regulatory issues to pricing directives. Besides facing challenges in India, the pharmaceutical firms braved headwinds in foreign markets as well.

“In, exports key market USA, saw challenges in the form of 483’s and import alerts, for most of the major companies. Also the number of approvals from the USA FDA got delayed, and hence there was an impact on the US sales of the companies, which was profound as the US accounts for close to 40% of Indian pharma exports and remains the biggest market for Indian generics. Apart from the USA, back home in India, the companies faced challenges on back of the government putting couple of drugs under the pricing pressure, which impacted the domestic sales of the Indian companies,” the research note added.

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Last week, Lupin reported a 49.2 percent on-year decline in net profit for Q4 FY17 while EBITDA for the quarter fell by 43.7 percent on-year. Similarly, Sun Pharma’s net profit fell 13.6 percent on-year in Q4 FY17 as its sales in the US, which accounts for 37 percent of the total sales, dropped 34 percent. Aurobindo Pharma, another top pick of Angel Broking, reported a 4 percent dip in consolidated net profit for Q4 FY17 while its total income dropped 2.6 percent in the quarter. Although most pharmaceutical companies reported weak Q4 results, the sector now seems to be on the road to recovery as sales beginning to normalize.

“While the domestic sales for some companies have normalised in 4QFY2017, others could see some uptick during FY2018. On exports front, especially USA saw the pricing pressure intensify in 4QFY2017, which was more pronounced with low launches. Also, many of the company also posted extra-ordinary expenses on their R&D expenditures, which resulted in them putting up a bad quarterly performance,” the report explained.